Final Project: www.inflationinrome.weebly.com Ancient Rome's Inflation:
Nero and other emperors debased the currency in order to [[#|supply]] a demand for more coins. By debasing the currency is meant that instead of a coin having its own intrinsic value.
It was now only representative of the silver or gold it had once contained. By the time of Claudius II Gothicus the amount of silver in a supposedly (100%) silver denarius was only .02%.
Especially luxurious emperors like Commodus, who marked the end of the period of the five good emperors, depleted the imperial coffers. By the time of his assassination, the Empire had almost no money left.
The Roman Empire acquired money by taxation or by finding new sources of wealth, like land. However, it had reached its furthest limits by the time of the second good emperor, Trajan, during the period of the high empire (96-180).
So land acquisition was no longer an option. [[#|As Rome]] lost territory, it also lost its revenue base.
Inflation in Rome was just like a general increase in prices and fall in the purchasing value of money.
When Rome had inflation, it was mainly because the emperor started to make coins out of tin instead of silver.
They did this because it was cheaper to make, and they could make more. Then prices would raise and money would flow in. Eventually they got too much money and had inflation.
In fact, the Roman empire split into two by the fourth century AD, with one emperor in the West and one in the East. The expression the “fall of the Roman empire” actually refers to the collapse of the western Roman empire: the Eastern Roman empire (or the “Byzantine” empire) continued, with its fortunes waxing and waning, until 1453 AD. The “fall of the Roman empire” describes the loss of territory the Western empire experienced from about 400 AD onwards.
While the Roman empire was hit by severe monetary inflation from the late third century to the early fourth century AD, the economic crisis largely abated by the mid-fourth century (Whittaker 1980). The Eastern Roman empire had been hit by the same inflationary crisis, but it never fell. Moreover, while the inflation had bad social effects, the full effects are not clear to us. The majority of the population of the Roman empire were peasants, but they were largely self-sufficient. Since the vast majority of the population was rural and engaged in farming (the most important productive activity in the empire), the inflationary crisis of the late empire probably had no great effect on them.
The Western empire persisted for nearly 50 years after the end of the inflation before it began to gradually [[#|lose]] its territory, and as late as 357 the Roman Caesar Julian the Apostate (emperor from 355 to 363) was able to inflict a crushing defeat on the Germans (the Alamanni and Franks) at the Battle of Argentoratum, when they were attempting to invade the empire. The devastating defeat the Romans later experienced at the battle of Adrianople (378 AD) when the eastern Roman Emperor Valens fought a Gothic army was clearly caused by strategic and tactical errors, and not because of the empire’s fiscal [[#|problems]] or inability to field an army.
The West lost most of its empire owing to barbarian invasions from 400–450, and there is an obvious explanation for this: military and strategic errors by generals and emperors. The Western empire ended in 476 AD because of a simple internal rebellion when the last Roman emperor (Romulus Augustulus) was deposed by Odoacer, [[#|the barbarian]] leader of mercenaries in Italy who had been proclaimed king of Italy.
The economic problems that the Roman empire faced after the third century AD were of course real, but not the result of the simple morality tale about inflation spun by apologists for free market economics. In other words, it was the super rich and propertied classes who evaded taxation and forced a highly regressive tax system on the middle classes and poor.
How inflation is a problem today:
Price effects. As the average level of prices increase, some prices increase faster than others, so more people are affected. The increase in gasoline prices in the summer of 2000 hurt truckers a lot, but barely affected people who live close to work and drive economy cars.
Income effects. As some prices increase faster than others, some incomes increase faster than others.
Wealth effects. Inflation redistributes income between borrowers and lenders. During the next 30 years, as prices rise, a certain price buys less and less. So as a borrower, the real value of your payment declines. Because of this, a borrower may gain from high inflation. The lender however, receives the same amount you originally paid per month, so the lender loses. If inflation is high enough the lender receives loan and interest repayment over the next 30 years will be worth LESS in real terms than the amount of money the borrower receives today. Inflation hurts lenders but benefits borrowers, especially if it is unexpected.
Uncertainty. Future prices are unknown, making it difficult to plan investment decisions. This means that some production will not be undertaken because firms are not certain about profitability.
Diverting resources from production. When inflation gets to be very high, firms and consumers spend more time and resources trying to avoid inflation, and less time on productive activities.
The Committee for Economic Development (CED), a proponent of voluntary wage and price controls, in a recent discussion of measures for controlling inflation stated, “. . . while appropriately stabilizing fiscal and monetary policies are clearly essential for the containment of inflation, it seems doubtful that these policies alone can fully succeed in reconciling price stability and high employment.” The CED further stated, “. . . that the United States should include voluntary wage-price policies among its tools for reconciling price stability and high employment.” I find, however, that in May 1946, near the end of that period of mandatory controls, the CED issued a statement which represents a different view. At that time it concluded, “. . . prices cannot be centrally controlled for any sustained period without inefficiency, inequity, breakdown of respect for law, and most important, serious danger to our personal and political freedoms.”
Final email to expert:
Dear ,
My name is Lane Kabbes, and I am a 7th grade student at Nagel Middle School. [[#|My classmates]] and I am working on a project that is dealing with the problems that Rome had when they had their downfall. My topic is Inflation in Ancient Rome, and inflation today. I saw that you were a journalist in the LA Times and I read a few of your articles on inflation. Do you think I could ask you a few questions?
1. If there is a solution to stop inflation until the economy until it is steadier, what do you think that would be?
2. If you were in Ancient Rome and it was in a state of inflation, would you try to stop inflation or would you not stop it?
3. How does inflation impact the future economy-in the long run?
4. Are there any solutions that a commoner would be able to take that may eventually stop inflation?
5. Overall, do you think that inflation is a good or a bad thing? If a bad thing, would you try to stop it if you could?
Thank you for your time!
Sincerely,
Lane Kabbes
Nagel Middle [[#|School]]
Hello Lane:
Thanks for your questions. I don’t know much about inflation in ancient Rome.
In terms of modern inflation, it’s generally agreed that it’s cause by “too much money chasing too few goods.” In other words an increase in the money supply greater than the increase in real goods and services. If the economy was growing by 3% (real GDP growth) and the money supply was growing by 3%, there wouldn’t be any upward pressure on prices. But if the money supply was growing by 30% and the economy was growing by 3%, that would create a situation where there would be upward pressure on prices. To stop inflation, we would have to stop large increases in the money supply by the central bank.
Inflation in the long run is damaging because it causes higher prices and higher interest rates, and negatively affects the economy. IN the extreme we have hyperinflation like recently in Zimbabwe, you might check on that. High inflation is generally bad for the economy, and the way to stop it is to control the growth in the money supply. That requires that the central bank/Federal Reserve act responsibly. One solution for many countries (New Zealand, Australia, Canada, UK) is adopt an “inflation target,” where the central bank is directed to achieve an inflation rate of say, 2.5%, or a range between 2-3%. That has been very effective in those countries in terms of achieving low and stable rates of inflation, so you might check on “inflation targeting.”
Professor Perry
Expert Contacts:
Bruce S. Buchanan
– C.W. Nichols Professor of Business Ethics
– Director, Business & Society Program Area
Tisch Hall
40 West Fourth Street, 423
New York, NY 10012
E-mail bbuchana@stern.nyu.edu
Joe Knueven
-Product Manager, Senco Brands
-Masters in Business Administration
Tiffany Hsu
-Business journalist for the LA Times.
-Specializes in economics
-Many articles on inflation
Twitter Handle: @tiffhsulatimes
(213) 237-7298 tiffany.hsu@latimes.com
Condoleezza Rice
-Denning Professor in Global Business and Economy
-Professor of Political Science, School of Humanities and Sciences
-The Denning Director for the Center for Global Business and the Economy [[#|Email]]: Rice@stanford.edu
Mark J. Perry
-Professor of economics
-Teaches at Michigan State University
The Consumer Price Index (CPI) program produces monthly data on changes in the prices paid by urban consumers for a representative basket of goods and services. There are separate indexes for two groups or populations of consumers:
The CPI for All Urban Consumers (CPI-U) is the index most often reported by the national media.
The CPI for Urban Wage Earners and Clerical Workers (CPI-W) is the index most often used for wage escalation agreements.
The CPI inflation calculator allows customers to calculate the value of current dollars in an earlier period, or to calculate the current value of dollar amounts from years ago. Consumer price indexes often are used to escalate or adjust payments for rents, wages, alimony, child support and other obligations that may be affected by changes in the cost of living. There is a fact sheet explaining how to use the CPI for escalating contracts.. An additional price index called the Chained Consumer Price Index (C-CPI-U) is also available. This measure is designed to be a closer approximation to a "cost-of-living" index than the CPI-U or CPI-W.
The Producer Price Indexes (PPIs) are a family of indexes that measure changes in the selling prices received by domestic producers of goods and services. They formerly were referred to as Wholesale Price Indexes. When the PPIs are released, the news media will most often report the percentage change in the index for Finished Goods. Producer Price Indexes also can be used in escalation contracts. A fact sheet explaining the details is available.
The International Price Program measures change in the prices of imports and exports of nonmilitary goods between the United States and the rest of the world.
Ancient Rome's Inflation:
How inflation is a problem today:
Final email to expert:
Dear ,
My name is Lane Kabbes, and I am a 7th grade student at Nagel Middle School. [[#|My classmates]] and I am working on a project that is dealing with the problems that Rome had when they had their downfall. My topic is Inflation in Ancient Rome, and inflation today. I saw that you were a journalist in the LA Times and I read a few of your articles on inflation. Do you think I could ask you a few questions?
1. If there is a solution to stop inflation until the economy until it is steadier, what do you think that would be?
2. If you were in Ancient Rome and it was in a state of inflation, would you try to stop inflation or would you not stop it?
3. How does inflation impact the future economy-in the long run?
4. Are there any solutions that a commoner would be able to take that may eventually stop inflation?
5. Overall, do you think that inflation is a good or a bad thing? If a bad thing, would you try to stop it if you could?
Thank you for your time!
Sincerely,
Lane Kabbes
Nagel Middle [[#|School]]
Hello Lane:
Thanks for your questions. I don’t know much about inflation in ancient Rome.
In terms of modern inflation, it’s generally agreed that it’s cause by “too much money chasing too few goods.” In other words an increase in the money supply greater than the increase in real goods and services. If the economy was growing by 3% (real GDP growth) and the money supply was growing by 3%, there wouldn’t be any upward pressure on prices. But if the money supply was growing by 30% and the economy was growing by 3%, that would create a situation where there would be upward pressure on prices. To stop inflation, we would have to stop large increases in the money supply by the central bank.
Inflation in the long run is damaging because it causes higher prices and higher interest rates, and negatively affects the economy. IN the extreme we have hyperinflation like recently in Zimbabwe, you might check on that. High inflation is generally bad for the economy, and the way to stop it is to control the growth in the money supply. That requires that the central bank/Federal Reserve act responsibly. One solution for many countries (New Zealand, Australia, Canada, UK) is adopt an “inflation target,” where the central bank is directed to achieve an inflation rate of say, 2.5%, or a range between 2-3%. That has been very effective in those countries in terms of achieving low and stable rates of inflation, so you might check on “inflation targeting.”
Professor Perry
Expert Contacts:
Bruce S. Buchanan
– C.W. Nichols Professor of Business Ethics
– Director, Business & Society Program Area
Tisch Hall
40 West Fourth Street, 423
New York, NY 10012
E-mail bbuchana@stern.nyu.edu
Joe Knueven
-Product Manager, Senco Brands
-Masters in Business Administration
Tiffany Hsu
-Business journalist for the LA Times.
-Specializes in economics
-Many articles on inflation
Twitter Handle: @tiffhsulatimes
(213) 237-7298
tiffany.hsu@latimes.com
Condoleezza Rice
-Denning Professor in Global Business and Economy
-Professor of Political Science, School of Humanities and Sciences
-The Denning Director for the Center for Global Business and the Economy
[[#|Email]]: Rice@stanford.edu
Mark J. Perry
-Professor of economics
-Teaches at Michigan State University
http://www.aei-ideas.org/author/mperry/Sources:
"Chapter 7: Inflation." Chapter 7: Inflation. N.p., n.d. Web. 15 Jan. 2013.
"The Ludwig Von Mises Institute." Inflation and the Fall of the Roman Empire. N.p., n.d. Web. 15 Jan. 2013.
"Topics Covered on This Site." History Learning Site. N.p., n.d. Web. 15 Jan. 2013.
"Social Democracy for the 21st Century: A Post Keynesian Perspective." : Inflation and the Fall of the Roman Empire. N.p., n.d. Web. 22 Jan. 2013.
"Economic Research - St. Louis Fed." Economic Research - St. Louis Fed. N.p., n.d. Web. 22 Jan. 2013.
"How To Solve Inflation." HubPages. N.p., n.d. Web. 22 Jan. 2013.
"Moneybox." Moneybox. N.p., n.d. Web. 22 Jan. 2013.
Consumer Price Index
The Consumer Price Index (CPI) program produces monthly data on changes in the prices paid by urban consumers for a representative basket of goods and services. There are separate indexes for two groups or populations of consumers:The CPI inflation calculator allows customers to calculate the value of current dollars in an earlier period, or to calculate the current value of dollar amounts from years ago.
Consumer price indexes often are used to escalate or adjust payments for rents, wages, alimony, child support and other obligations that may be affected by changes in the cost of living. There is a fact sheet explaining how to use the CPI for escalating contracts..
An additional price index called the Chained Consumer Price Index (C-CPI-U) is also available. This measure is designed to be a closer approximation to a "cost-of-living" index than the CPI-U or CPI-W.
Producer Price Indexes
The Producer Price Indexes (PPIs) are a family of indexes that measure changes in the selling prices received by domestic producers of goods and services. They formerly were referred to as Wholesale Price Indexes. When the PPIs are released, the news media will most often report the percentage change in the index for Finished Goods.Producer Price Indexes also can be used in escalation contracts. A fact sheet explaining the details is available.
Import and Export Prices
The International Price Program measures change in the prices of imports and exports of nonmilitary goods between the United States and the rest of the world.